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Corporation tax volatility will lead to ‘inevitable fall’

The “wind is at our backs” in relation to corporation tax yield but “it cannot continue indefinitely”, the head of the Irish Fiscal Advisory Council has warned.

Economist Seamus Coffey told the Oireachtas Budgetary Oversight Committee there is “significant volatility taking place under the bonnet” when it comes to corporation tax revenues and that a fall was inevitable. The record €8bn taken in last year could not go up indefinitely, he said.

“The concentration and volatility of corporation tax receipts mean that a year where they fall is inevitable. We should not be surprised, or taken by surprise, when this happens.

“In the near term, the reason for the fall is likely to be the inherent volatility, which is a feature of our corporation tax receipts, rather than any structural shift or change,” he said.

The volatility could be seen by analysing the yield from the top 10 paying companies, he said.
“Receipts from the largest 10 payers in 2015 came to €2.8bn. In 2017, these same companies paid €2.25bn. The top 10 payers in 2017 paid €3.2bn compared to the €2.3bn these companies paid in 2015.

“So even though the proportion of payments coming from the top 10 in 2015 and 2017 are very close, the top 10 from 2015 paid more than €500m less corporation tax in 2017, and the top 10 in 2017 paid almost €1bn more than they did in 2015.”

The nationalities of the firms generating corporation tax yield should be noted carefully, he said.

“In 2017, the top 100 payers made €5.9bn of corporation tax payments, equal to 71.5% of the top. Within this top 100, 51 US companies paid €4.25bn, UK companies €128m, Irish companies €370m, with €1.1bn coming from companies owned outside those three countries. It is clear that our receipts are also highly concentrated among US-owned companies,” he said.

He dismissed concerns that multinationals held too much political sway with Irish leaders, saying the evidence was clear it was not the case. “Our corporation tax regime doesn’t seem to bounce around and change to the whims of these companies. We introduced a 12.5% rate and it has been there ever since. There hasn’t been significant changes to the underlying system.

“I’m sure the large companies and representative bodies make submissions to the Department of Finance and try to get the ear of the Minister to make various changes but I am not sure Irish policy is dancing fully to the beat of the requirements of foreign companies. The evidence in the planning area, particularly over the last few weeks, is that the influence is not as large as some would believe,” he said.